Infonautics name will disappear in buyout The struggling Internet company, whose stock has dipped to 66 cents, will be purchased by a Toronto firm.

By Reid Kanaley INQUIRER STAFF WRITER

Posted: March 29, 2001

Infonautics Inc., one of the first Internet companies in the Philadelphia area, has agreed to be acquired by Tucows Inc., a Toronto firm that sells domain names and distributes software online.

The fate of troubled Infonautics' 40 remaining employees and its King of Prussia office remains to be determined, officials of both companies said yesterday.

There was no doubt, however, that the deal would mark the end of the Infonautics name, though the company's 80,000-subscriber Electric Library online-research service and its Internet-trolling Sleuth Web sites will survive, at least for the time being.

In the all-stock transaction, described as a reverse merger, privately held Tucows (pronounced "two cows") will acquire an 80 percent interest in publicly traded Infonautics, and shares of the combined, public company will trade under the Tucows name.

To effect its own acquisition, Infonautics will issue 50 million shares of Class A common stock to Tucows shareholders, who were identified by Elliot Noss, Tucows president and chief executive officer, as mostly Israeli and Canadian investors.

The market value of the combined company would be about $41 million, based on yesterday's closing price for Infonautics shares.

Noss will head the combined company, with headquarters remaining in Toronto. Van Morris, the president and chief executive officer of Infonautics, said he would likely become a member of the Tucows board of directors.

Infonautics has struggled to win investors' confidence. The merger announcement comes as Infonautics approaches an impossible April 3 deadline to bring its share price above $1 for 10 consecutive trading days or be delisted by the Nasdaq SmallCap market.

The shares, which traded at $10.25 a year ago, closed yesterday at 66 cents, up 12 cents. Morris said he would now go to Nasdaq officials with the merger agreement in an attempt to negotiate a delay of the delisting.

For 2000, Infonautics had revenues of $11.2 million and a net loss of $14.3 million. Tucows, with 220 employees, had sales of $28 million in 2000, up from $4 million in 1999. Noss said the eight-year-old company makes 75 percent of its revenue as a domain-name registrar, but it has not yet made a profit.

A deal last year that would have merged Infonautics with two other firms - IBS Interactive Inc., of Cedar Knolls, N.J., and First Avenue Ventures Inc., of King of Prussia, - went sour and died in November because of market conditions.

The Tucows deal is subject to regulatory and stockholder approval and would close in the third quarter.

Infonautics was founded in 1992 by entrepreneurs Joshua Kopelman and Marvin Weinberger. Its first product, a pre-Internet reference service then called Homework Helper, was offered to subscribers of the Prodigy online service for about $10 a month. The company went public in 1996 after repackaging Homework Helper as the Electric Library and moving it to the World Wide Web.

Kopelman left Infonautics last year to found Half.com, a Web service that lets people sell used books, music, movies and video games. Weinberger left Infonautics in 1998 to start Electric Schoolhouse, an educational online service that has since gone out of business.

Weinberger, still the largest shareholder of Infonautics, with about 10 percent of its stock, said yesterday that he expected to vote his shares in favor of the merger.

But Weinberger said he was unhappy that the merger seemed necessary, and he faulted Infonautics' management for failing to make the company more attractive to Wall Street.

For his part, Morris, who had replaced Weinberger at the top of Infonautics, said he had "worked hard to try and find value" for the stockholders, but "I was given a difficult deck of cards."

Joseph Garner, an equity analyst at Emerald Research, said yesterday that the hard medicine of a merger was the only way out for Infonautics. "Survival is the name of the game," he said. And with Tucows, "the chances of survival are better."